Canadian Zinc aims for 2020 production at Prairie Creek

VANCOUVER — Canadian Zinc (TSX: CZN; US-OTC: CZICF) has set the stage for a 2020 production target at its past-producing Prairie Creek zinc-lead mine, which sits amid the Mackenzie Mountains, 500 km west of Yellowknife, Northwest Territories.

On Sept. 28, the company released an updated feasibility study that it hopes will underpin project financing for the $280-million development.

The study lays out a 15-year mine plan that leverages recent efforts to optimize Prairie Creek’s grade profile and throughput. Canadian Zinc has boosted anticipated mill rates by 25% — compared to previous studies — to 1,200 tonnes per day, which would contribute to higher metal production and lower operating costs.

The portal to underground workings at Canadian Zinc’s Prairie Creek zinc-lead-silver project in the Northwest Territories. Credit: Canadian Zinc.

“The [higher rate] will require additional lateral mine development, and it does shorten the mine life very slightly on the back end,” Canadian Zinc chairman and CEO John Kearney said during a conference call. “The strategy does improve early production metrics, however, due to our ability to leverage more sulphide ore upfront, which provides better revenue value than the oxide material. We’ve also modelled new grinding and flotation circuits, a more efficient flow sheet and a new reagent scheme.”

Prairie Creek’s upfront capital requirements have jumped $35 million due mostly to a longer construction period; earlier mine dewatering; larger ramp and mine development; and more infrastructure required for higher mining rates.

Prairie Creek’s infrastructure includes 5 km of underground workings on three levels; a 910-tonne-per-day mill; a fleet of heavy duty and light duty surface vehicles; three exploration diamond drill rigs; and a camp.

The original mine’s processing plant and concentrator was almost fully built when the project shut down in 1982. The facility also includes a 1.5-million-tonne capacity tailings impoundment, power plant and water-treatment plant.

Proven and probable reserves stand at 8 million tonnes grading 8.64% zinc, 124 grams silver per tonne and 8.1% lead, which marks a 6% increase in tonnage due to lower equivalent zinc cut-off grades, rising zinc prices and stope optimization.

The company forecasts that the first 10 years of annual production will average 65,000 tonnes of zinc concentrate and 72,000 tonnes of lead concentrate, containing an average of 95 million lb. zinc, 105 million lb. lead and 2.1 million oz. silver. The company estimates life-of-mine operating costs of $223 per tonne.

“We’ve been working on the financing strategy over the past twelve months. We don’t anticipate that it will be a one-stop shop, and we see a number of legs to the table, so to speak,” Kearney said.

“Our plan at the moment certainly involves bank debt for between 60% and 70% of the capital costs. The balance would be backfilled by a combination of other financing mechanisms, whether that’s a stream, mezzanine-type financing or offtake arrangements,” he said.

The study features an 18.4% post-tax internal rate of return and a $188-million net present value at an 8% discount rate. The base case assumes US$1.10 per lb. zinc, US$1 per lb. lead and US$19 per oz. silver.

Equipment in front of a portal to underground workings at Canadian Zinc’s Prairie Creek polymetallic project in the Northwest Territories. Credit: Canadian Zinc.

The study incorporates all-season road access following approval from the Mackenzie Valley Environmental Impact Review Board for an access route to Prairie Creek.

The environmental assessment report has been forwarded to the Federal Minister of Crown-Indigenous Relations and Northern Affairs, Carolyn Bennett, for final approval. Canadian Zinc says there were “no surprises” in the process, and noted it could start construction of a winter road before transitioning to the year-round alternative.

“The road development cannot be overstated. It enables year-round operations and will enable timely delivery and concentrate exporting to market on a consistent basis,” Kearney said.

“It also lowers the logistical risk by not limiting us to just the winter months, which also leads to smaller trucking fleets. In addition, all-season road access allows us to consider alternative energy sources like liquefied natural gas.”

Canaccord Genuity analyst Eric Zaunscherb has a “speculative buy” rating on Canadian Zinc, and dropped his price target by 5¢ to 30¢ per share following release of the feasibility study.

He noted “the project is impaired by a stronger Canadian dollar and lower silver price,” but added that the mine design “features notable improvements” from a pre-feasibility study released last year.

Canadian Zinc shares have traded in a 52-week range of 15¢ to 32¢ per share, and closed at 32¢ at press time.

The company has 266 million shares outstanding for a $53-million market capitalization. It last reported $1 million in working capital.